Stocks Snap Two-Day Rally

Dylan and Karen start Tuesday's show by agreeing that it looks like "anything goes" with the current market, as the Dow snapped its recent rally to end the day almost 3% down.

This drop was not a surprise to those who are in the business and watch for such things -- Dylan says it was "anticipatable" and is just "the market behaving as markets do."

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Pete agrees. With the S&P up 10% in the recent rally, you'll now "start to see people who want to take a little bit of rofit." He uses Hewlett Packard and IBM as examples -- both tech stocks were "on a tear." He also notes the IYR which climbed 30% in a week and "gave back" 7% today. Overall, however, the Volatility Index is steady: it was 58.5 yesterday and 59 today. "We're getting into a comfort zone."

-------------------T-BILLS TRADE AT NEGATIVE RATE

T-Bills, three-month Treasury bills, went negative today. "Basically," explains Dylan, it means "you have to pay the government for the right to keep your money... Who would be so crazy as to do that?" Dylan wonders if the fault rests with the big banks -- the ones that "get some taxpayer money, bring that in and then jam it back into the Treasury market."

Macke blames this "little process" for today's dip: "That was pretty much the catalyst for running out of reasons to buy stocks."

He adds that it makes him wonder about the government's ability to invest -- what with the GM bailout and now this process of it "giving the banks money, taking it back and giving it back to the banks."

Macke ends by noting that we've now gone from bragging about the U.S. political and economic policy as being better than the Japanese to "aspiring to be the Japanese, because it actually costs us money to give it to people."

Tim doesn't think it's a big deal, however. People are just "scared by this." He thinks its just a year-end phenomenon, about "having cash in your balance sheet." He points out that the people selling T-bills today were not the primary dealers, but a "bigger percentage of non-primaries."

The auto bailout (on which investors are still waiting for definitive news) also may have impacted Treasurys. It's a move, Dylan says, "From the government to put the taxpayer -- now the taxpayer investment -- not just in front of the shareholder as it has been with the bank [bailouts], but in front of every creditor, even the most senior creditors." That can also create more Treasury demand.

Karen calls it "eminent domain" in the financial world and even seems to her to be a violation of contract law. "Old rules are gone."

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ANXIETY: PANEL TO KNOCK TARP

According to the Wall Street Journal, a report critical of the government TARP program will be released tomorrow. Among other things, it criticizes the lack of transparency to date: basically, how the money's been deployed, lack of disclosure on which banks needed it and the lack of disclosure on collateral, if any.

Tim echoes the sentiment of many: "This is a big 'no kidding.'" The criticisms supposedly listed in tomorrow's report are obvious and offer nothing new or interesting. "Everybody is and should be critical" about the non-transparency of TARP.

Macke calls Tim's statement a case for selling equities. He "doesn't want to own equities" in a market where he has no idea how to value them.

Pete is the lone voice of the group that has something positive to say on the TARP, particularly the "reaction from the financials" like Citigroup, which has moved up in recent days. His opinion is to give TARP some time, that it won't "kick in" in just a few weeks. He's looking slightly longer term and feels that in 2009, more people will get back into equity markets, like banks and airlines -- but "not the cars."

Karen presents a case to be somewhat bullish. She thinks there are still plenty of companies that are operating outside of the TARP, they're not looking for funds from the government. As an example, she points to fast food giant McDonald's: "They don't need the TARP. They don't need anybody to just do their business: deliver value to the customer. Those are equities that are good to own."

She brings up an example she refers to often, BB&T, which has "real asset problems" and nonperforming loans. She says she couldn't make a "giant bet" on this play, but she could take a small bet "on the short side," because its valuation is "ridiculous."

Pete: "We needed to do something, and we were imploding," pointing to the jobless numbers and overall economy."

Dylan says all of the culpable bank CEOs need to step forward and admit their guilt in taking the risks that resulted in this mess, and that the money that was not made should be returned, despite so-called "missteps" in Congress.

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WAL-MART ROLLS BACK BUYBACK

Wal-Mart announced today the decision to suspend its stock repurchase program. Macke, a staunch supporter of the company, thinks it's a good move. "Buybacks don't really work to support the stock historically," he says. "Makes all the sense in the world" for them to want to preserve some capital, he says, given the lousy credit environment. After all, retailers have revolving credit and need to borrow funds to stock inventory, to sell to "customers who are too afraid to buy anyway."

Karen agrees it's a wise move and finds it interesting that Sears Holding is still doing a buyback, even though it's in worse financial shape than Wal-Mart. Maybe CEO Ed Lampert is trying to "talk the debt down, so he can buy it cheaper," she says.

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